Indonesia has secured a $1 billion investment commitment from Apple to lift a sales ban on iPhone 16s, but experts warn this may be a fleeting achievement. The country’s stringent domestic content requirements could alienate potential investors, especially as neighbors like Vietnam provide more favorable conditions. Despite the hype, Indonesia’s protectionist policies may hinder its manufacturing revival and economic growth ambitions.
Indonesia perceived an achievement after Apple Inc. pledged to increase its investment in the country to $1 billion in exchange for lifting a ban on the sale of iPhone 16s. However, analysts caution that this success might be temporary. By adopting a protectionist strategy to attract manufacturers, Indonesia risks alienating itself amidst its neighbors, which are welcoming investors who are shifting from China due to potential tariffs under Donald Trump.
Domestic content requirements pressed Apple to elevate its investment significantly from $10 million to $1 billion within a month. These regulations compel Apple to establish production facilities locally, with one of its suppliers set to build a plant for producing AirTags in Batam, intending to employ around 1,000 individuals.
The Indonesian government’s approach aims to garner more foreign direct investment (FDI), especially from companies that prioritize their market access among Indonesia’s 270 million citizens. However, this policy may inadvertently deter FDI by elevating costs, complicating regulatory frameworks, and requiring localization in sectors where domestic suppliers are often ill-equipped to meet international standards, particularly in high-tech industries.
Indonesia requires a revival in manufacturing to generate employment and stimulate economic growth, striving for an annual growth target of 8% over the next five years to achieve high-income status by 2045. This initiative has faced challenges, including the closure of textile and footwear factories leading to thousands of layoffs, and the downsizing of local pharmaceutical production.
Investment Minister Rosan Roeslani emphasized the need for fairness, stating that companies receiving benefits must also contribute by investing and creating jobs. Apple follows the path of Samsung and Xiaomi, which have allocated billions to establish factories despite encountering costs and supply chain challenges.
The American Chamber of Commerce highlighted that such regulations could result in decreased production levels and compel companies to source higher-cost materials, often plagued by a lack of local suppliers capable of meeting advanced technology standards.
The government’s domestic content ratio, currently at 35% for mobile devices, is set to increase, while the prior investment avenues that permitted funding for developer academies may be eliminated. This change presents difficulties for meeting local content requirements, primarily as technology advances rapidly, leaving Indonesia lacking in the capability to manufacture relevant components.
Indonesia’s local content mandates span several sectors, including automobiles and medical devices, compounded by persistent issues such as bureaucratic obstacles and high taxation, which have hindered manufacturing growth. In contrast, neighboring Vietnam and India provide favorable tax incentives and less restrictive environments for global investors, making them more appealing destinations for production.
Vietnam’s efficient support for manufacturers, including organized transportation for workers and prompt resolution of labor issues, illustrates how Indonesia might struggle to compete for foreign investment.
The ongoing protectionist policies may drive potential investors to favor countries like Vietnam, which offers a more liberalized market, thereby reconsidering their investment strategies.
The article discusses Indonesia’s recent dealings with Apple Inc., highlighting the challenges and implications of the country’s protectionist strategies in attracting foreign investment. It outlines the ban on iPhone sales and how content regulations have compelled Apple to increase its investments significantly. Moreover, it delves into the competitive landscape in Southeast Asia, where neighboring nations like Vietnam offer more favorable conditions for manufacturers.
In conclusion, while Indonesia may celebrate a temporary gain with Apple’s investment promise, the longer-term impacts of stringent domestic content requirements and a protectionist stance could jeopardize its attractiveness to foreign investors. To sustain growth and competitiveness, Indonesia must consider reforms that strike a balance between local production requirements and maintaining a welcoming environment for external investments.
Original Source: www.livemint.com
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